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Bloomberg; Eni Falls on Report Kashagan Accord May Be at Risk (Update2)

By Anthony DiPaola

Jan. 11 (Bloomberg) — Eni SpA fell in Milan trading after a news report said the Kazakh government may cancel the contract to develop the Kashagan oil field, held by a group the Italian company represents.

Kazakhstan may annul the production-sharing agreement with the Eni-led group, Russian news agency Interfax reported, citing a person close to negotiations between the parties. Eni fell as much as 0.9 percent, erasing earlier gains of as much as 0.7 percent.

The Italian company and its Kashagan partners are in dispute with Kazakhstan over delays and rising costs at the field. Kazakhstan in July rejected the group’s development plan that imposed a second delay on the start of production and an increase in costs, which the government says more than doubled the price for developing and running the field to $136 billion.

“This is last-minute pressure on the shareholders from the government; it’s a game,” said Rinat Gainoulline, an equity strategist at Moscow’s Alfa Bank. “It would be very damaging for Kazakhstan to cancel the contract. Instead, both sides will use common sense and find a compromise agreement.”

Eni fell 8 cents, or 0.3 percent, to 25.07 euros at 1:57 p.m. in Milan, giving it a market value of 100 billion euros ($148 billion). The company declined to comment on the report.

Kashagan Stakes

Eni operates the development through its local unit Agip KCO. The Italian company, along with Exxon Mobil Corp., Total SA and Royal Dutch Shell Plc, each hold 18.5 percent of Kashagan, while ConocoPhillips has 9.3 percent. Kazakhstan’s state- controlled oil company, KazMunaiGaz National Co. and Japan’s Inpex Corp. own 8.3 percent.

“Right now I wouldn’t tell people to invest in Eni,” said Stefano Mussati, an investment adviser at Credit Suisse Group in Milan. “Until they resolve this issue, I don’t see Eni as a good performer.”

Eni shed 10 percent in the last six months, lagging the 20 member Bloomberg Europe Energy Index, which fell 8.9 percent in the period. Total fell 0.9 percent to 57.21 euros in Paris today and Shell was down 1 penny to 2,123 pence in London trading.

Total declined to comment on the matter through spokeswoman Patricia Marie. “Total will be represented at a meeting scheduled for Sunday,” she said by phone from Paris. Eni and partners are set to meet Kazakh officials to discuss the dispute before a Jan. 15 deadline to reach a conclusion.

Wim van de Wiel, spokesman of The Hague-based Shell, declined to comment by phone and referred questions to Eni. Astana-based KazMunaiGaz spokesman Arzhan Takachakov and an adviser to Kazakh Energy Minister Sauat Mynbayev both declined to comment.

State Holding

As part of a possible solution to the dispute, Kazakhstan seeks to double its stake in the project to 16.8 percent, as compensation for delays and costs, the ministry said last month.

A final agreement with the country may include the foreign oil companies making a cash payment to the Kazakh government and selling a portion of their stakes to KazMunaiGaz.

A settlement may cost the oil companies between $3 billion and $4 billion, Eni Chief Executive Officer Paolo Scaroni said in a Dec. 29 interview with the Wall Street Journal.

The dispute will delay the start of production at the field, one of the biggest oil discoveries in the last three decades, to 2011 from 2010, Scaroni was quoted as saying in the interview. Eni spokesman Gianni Di Giovanni verified the remarks at the time.

To contact the reporters on this story: Anthony DiPaola in Rome at [email protected] .

Last Updated: January 11, 2008 08:33 EST

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